China’s Foreign Exchange Reserves Breach $2 Trillion

China’s foreign exchange reserves have topped $2 trillion–$2,131.6 billion at end-June to be precise. Hold the presses, whatever they are.

It is a symbolic number rather than anything else. While China’s exports have fallen (down 21.8% year-on-year in the first half to $521.5 billion), imports have fallen faster (down 25.4% to $424.6 billion over the same period). That pushed up the trade balance to $96.9 billion in January-June. The reserves grew by $178 billion in the second quarter. They were up only $7.7 billion in the first quarter.

The People’s Bank of China will want to mop up some of this liquidity, so expect a tightening of monetary policy over the next few months — we are already seeing the bill sales to drain cash from the system. The central bank’s challenge will be to do so in a way that neither spooks markets being inflated by hot money inflows, nor undermines the drive to the politically all-important 8% growth target for the year.

1 Comment

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One response to “China’s Foreign Exchange Reserves Breach $2 Trillion

  1. I just wrote about this today, too…. interesting to see the fast rate of growth of these reserves since 1978. I wonder how much of it earns monthly interest for them.

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